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Insurer Not Subject to Sanctions for Allegedly Failing to Negotiate in Good Faith During Mandatory Settlement Conference
Insurance Law Update
California State Court of Appeal, Second District
In Vidrio v. Hernandez, 172 Cal.App.4th 1443 (April 13, 2009), the California State Court of Appeal, Second District, reversed sanctions imposed on an insurer for alleged failure to negotiate in good faith at a mandatory settlement conference. In Vidrio, the plaintiffs were involved in an automobile accident with the defendant. The plaintiffs claimed tens of thousands of dollars in general damages, lost earnings and medical expenses. The defendant denied liability and alleged that the driver of the plaintiffs’ vehicle was the cause of the accident. The defendant further disputed the nature and extent of the plaintiffs’ claimed injuries.
A mediation was held, which did not result in a settlement. The defendant made statutory offers of $1,000 to each of the plaintiffs, which were countered by demands of $15,000 by each of the plaintiffs.
A mandatory settlement conference was held pursuant to court order. The conference was attended by the parties and their counsel and an insurance adjuster for the defendant’s automobile liability insurer with authority to settle. Neither side raised or lowered their respective statutory offers and demands and the case did not settle. Following the settlement conference, the trial court issued an order to show cause why sanctions should not be imposed. Although the defendant contested liability and neither side revised their respective demands, the court held that the insurer for the defendant acted in bad faith because the court believed that the defendant’s case was weak, that the plaintiffs suffered considerable damages and the cost of trial would exceed the settlement demand. The trial court ordered sanctions against the insurer payable to the court and for part of the plaintiffs’ attorneys’ fees. The Court of Appeal reversed the order for sanctions on multiple grounds. It held that the rules of court and local rules required attendance at the mandatory settlement conferences and the insurer’s alleged bad faith in the negotiations did not violate any court order. It also held that statutes permitting sanctions were limited to witnesses, parties and their attorneys – none of which applied to the insurer – and there was no basis to award attorneys’ fees to the plaintiff under the rules of court and local rules.
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